Michigan bills attach strings to Detroit bankruptcy money

Thu May 8, 2014 9:20pm EDT

May 8 (Reuters) - Legislation introduced on Thursday in the Michigan House of Representatives would tie state money key to Detroit's bankruptcy exit plan to oversight and other conditions.

Detroit's plan for dealing with $18 billion of debt and emerging from the biggest municipal bankruptcy in U.S. history depends on $816 million pledged to ease the impact of pension cuts on retired city workers and avoid a sale of city art work to raise money for creditors.

The so-called grand bargain includes $350 million in state money that Michigan Governor Rick Snyder has asked lawmakers to approve. Philanthropic foundations and the Detroit Institute of Arts pledged the rest of the money.

Under the legislation, Michigan would make a single upfront payment of nearly $195 million, instead of $350 million spread over 20 years. The money would be taken out of the state's rainy day fund and paid back over 20 years with proceeds from Michigan's share of a national settlement with U.S. tobacco companies.

The 11-bill package also creates a seven-member commission to oversee the city's finances that is modeled after one put into place following New York City's fiscal crisis in the 1970s. Detroit is run by state-appointed emergency manager Kevyn Orr, whose term is scheduled to end in September.

"A contribution to this settlement, if done properly, is a contribution toward change and accountability," House Speaker Jase Bolger, a Republican, said in a statement. "This package of bills would finally face the problems of Detroit and its impact on our state head on. These reforms would deliver long-term and long-lasting solutions."

The legislation would also require all collective bargaining agreements with city unions to be approved by the Detroit commission, and 401k retirement plans instead of pensions for all workers hired after current collective bargaining agreements expire.

Snyder, a Republican, said the bills reflect the willingness of state lawmakers to help Detroit pensioners and ultimately save the state money.

Bolger, who formed a House Committee on Detroit's Recovery and Michigan's Future this week, indicated the bills will move quickly during the coming weeks through a transparent committee process.

Also on Thursday, an attorney representing four Detroit public safety unions signaled that two of the unions are likely to continue to fight the city's debt adjustment plan. Barbara A. Patek, an attorney with Erman, Teicher, Zucker & Freedman, asked U.S. Bankruptcy Judge Steven Rhodes to allow her to withdraw from representing the Detroit Police Lieutenants & Sergeants Association and the Detroit Police Command Officers Association, which have entered into tentative settlements with the city.

Patek told the court she would continue to represent the larger unions, the Detroit Fire Fighters Association and the Detroit Police Officers Association, which "have been unable to reach an agreement in spite of exhaustive efforts by the parties and the mediators." She added it is "probable" the two unions will be objecting to Detroit's plan "on various grounds."

Orr in recent weeks has been reeling in agreements with key creditors, including the city's two pension funds, three bond insurance companies, unions, and retiree groups. Holdouts include bond insurers Syncora Guarantee and Financial Guaranty Insurance Co, which are on the hook to make payments on defaulted debt Orr has labeled as being unsecured. (Reporting By Karen Pierog in Chicago; Editing by Mohammad Zargham)

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